Will entrepreneurial spirit help Singapore reinvent itself?

The efforts of policymakers to build a world-class start-up ecosystem are showing signs of success, but it may be too early to form conclusions about entrepreneurship’s contribution towards Singapore’s economic reinvention.

Before the turn of the millennia, Singapore's economy was focused on attracting foreign direct investment and big multinationals to operate here and create jobs. However, as China and other developing countries across Asia became cheaper manufacturing bases and attractive markets, Singapore soon realised that it had to climb further up the value chain, move towards high-tech industries and rely less on foreign companies and investments for continuous growth.

To breed globally competitive companies and locally developed technology, Singapore's government begun to emphasise innovation and entrepreneurship. For the last 15 years or so, the government has introduced various policies to develop the entrepreneurial spirit in Singapore.

What has it done so far and has it made a difference?

Government organisations that promote entrepreneurship

The government supports businesses through a number of different agencies. SPRING Singapore focuses on helping small and medium enterprises, including start-ups. It also co-invests with independent investors in start-ups through its investment arm SPRING SEEDS Capital.

The Singapore Economic Development Board develops strategic industry clusters by attracting foreign companies and helping local enterprises to develop partnerships and competitive capabilities. It also has its own investment arm to invest in growth-stage companies.

A multi-prong approach to developing the local start-up ecosystem

Much has also been done over the years to grow the local start-up ecosystem.

Dr Francis Yeoh, Professorial Fellow for Entrepreneurship at the School of Computing, National University of Singapore (NUS), reviewed and discussed many facets of the government's efforts as part of a special series produced by Channel NewsAsia on Singapore's burgeoning start-up scene.

The Singapore government often designates specific areas for industries it is focused on growing, promoting them as hubs'. For entrepreneurship, this has been JTC LaunchPad @ one-north, a 6.5 hectare site of revitalised old industrial buildings now rented out to start-ups and incubators and venture capital firms. Yeoh noted in his article that one particular building in the area, Block 71, has gained international fame after being dubbed by The Economist as the world's most tightly packed entrepreneurial ecosystem'.

He also highlighted the successes of some of the government's most bold and generous co-investment schemes to attract venture capital to invest in Singapore start-ups.

Data from the NRF showed that the roughly S$100 million allocated to investment schemes such as ESVF (Early Stage Venture Fund) and TIS (Technology Incubation Scheme) (as at March 2016) enabled supported start-ups to attract follow-on funding from private capital of almost S$400 million, giving an impressive leverage of four times the government's outlay.

He further noted that of the 145 start-ups supported by the TIS, 61 attracted follow-on funding, 34 had exits and only 29 ceased operations. This success rate was remarkable compared to what most venture capital funds achieved.

Beyond co-investment schemes such as the ESVF and TIS, government-linked venture capital funds such as Vertex Ventures Southeast Asia & India (under Vertex Venture Holdings, a member of Temasek Holdings) and Singtel Innov8 (wholly owned by Singtel Group) also take equity stakes in both local and foreign start-ups.

Growing the entrepreneurial spirit from young

In terms of engagement at the grassroots level, most of the programmes are driven by the Action Community for Entrepreneurship (ACE). Started by the Ministry of Trade and Industry in 2003, ACE was restructured in 2014 into a non-profit organisation led by individuals from the private sector. It is primarily involved in conducting education, mentorship and outreach programmes as well as managing physical facilities used for entrepreneurship-related activities.

Singapore's universities, like many others all over the world, also have incubators, entrepreneurship clubs and internship programmes. However, Singapore distinguishes itself by how early it attempts to cultivate an entrepreneurial spirit in the youth.

The Ministry of Education (MOE) has incorporated innovation and entrepreneurship programmes into its curriculum. For example, selected schools have introduced a project-based Innovation Programme (IvP), which sees primary and secondary students developing and showcasing a product prototype over a nine-month period. There is even a direct admissions scheme for secondary schools based on creativity, innovation and entrepreneurship as a criteria.

Have these efforts worked?

These policies seem to be bearing fruit. The Committee on the Future Economy, which was set up in January 2016 to review Singapore's economic strategies, released its report in February 2017. It noted that the country now ranks top 10 among start-up nations. Specifically, the number of start-ups in high-technology sectors has increased by 70 per cent from 2,800 in 2003 to 4,800 in 2015.

Wong Poh Kam, Professor from the Lee Kuan Yew School of Public Policy (LKYSPP) at the NUS and Director of the NUS Entrepreneurship Centre, co-authored a paper titled Economic Growth Through Innovation and Entrepreneurship with Ho Yuen Ping, Associate Director at the NUS Entrepreneurship Centre. Published in October 2016, their study found that there are persuasive theoretical and empirical foundations for policies that promote entrepreneurship and innovation in pursuit of economic growth.

Beyond statistics, the qualitative evidence also seems to suggest Singapore's policy efforts are paying off. Singapore is increasingly being mentioned in foreign media as a start-up hub. An article in the Harvard Business Review acknowledges that Singapore has become an entrepreneurial hub, citing serious government skin in the game as one of three reasons for the success.

Agreeing with these observations is Justin Hall, a Master in Public Policy (Entrepreneurship Policy) graduate from the LKYSPP and Principal at Golden Gate Ventures, a venture capital firm based in Singapore. He has been a practitioner in the scene for more than five years now.

Hall said: I consider the Singaporean government a world leader in creating progressive, effective and meaningful entrepreneurship policy. Singapore's success today is in large part due to the programmes, schemes and policies it implemented over a decade ago.

Challenges to developing entrepreneurship in Singapore

Although Singapore's efforts to develop entrepreneurship are laudable, there are still some constraints that even a generous government and eager policies may not be able to solve.

In a recent interview with The Business Times, Tan Min-Liang, CEO of gaming hardware company Razer, said: "While it might seem like common wisdom to first test (an idea) in Singapore and then take it regionally and to the world, with all due respect to the government, I think it doesn't make sense in today's world. Attributing this to the small domestic market, he suggested that companies should instead testbed in larger markets such as the US and China from the get-go.

Founded in 2005 in Singapore, the company's products and investors pretty much span the globe now. Razer filed for an initial public offering in Hong Kong in June 2017 and is said to be targeting a valuation of US$5 billion, making it potentially one of Singapore's most successful start-ups.

The government can directly influence entrepreneurship through the laws, regulations and economics of venture capital, said Hall. However, other factors such as the propensity for risk, cultural acceptance and choice of entrepreneurship over other careers are much harder to control, he added.

Too early to judge the success of Singapore's entrepreneurship policies

If we successfully transform our economy along the lines of start-ups, innovation and creativity, we should expect our rankings in the traditional tables to tank in the transition phase. We would then be succeeding in areas for which rankings have not yet been developed, they said.

If they were right, then the signs of success may have only just started showing. The jury is still out on whether Singapore's entrepreneurship policies will eventually succeed in boosting its economic reinvention. That conclusion, as Kuah and Low allude to, may also require a set of evaluation criteria that have yet to exist. For now, it can only be said that Singapore's start-up scene has successfully gained global recognition.